US Housing Construction Hit a Record Low in April

Just as it appeared that new construction starts for personal residences were beginning to stabilize in the U.S. (as evidenced by very small increases In March and April as opposed to severe decreases in the 12 months before that), commercial real estate starts plunged in both months, taking new housing construction for April to an historic low.

Figures on new housing construction have been kept for just over 50 years, with the April figures being the worst ever.

Multifamily construction fell 23% in March and a staggering 46.1% in April; the very months when, in any other economic climate, construction would be expected to be rapidly on the increase. Part of the blame went to the glut of condominiums and unsold foreclosures still sitting on the U.S. market, making new apartments and condos completely redundant, but the other side to the decline was the increasingly tight commercial credit market.

At the current rate of sale, it would take approximately 10 months to clear the April backlog of unsold homes and condos in the U.S. Compare that figure to the 6.5 months it would have taken back in April of 2006, and a sense of how sluggish the market is becomes more clear.

A small silver lining in all that bad news was that housing starts in the Western part of the U.S. (i.e. California, Nevada, Arizona) were actually up 46%. The West has also witnessed a recent uptick in the number of pre-existing homes being sold, a indication that the housing market on the West Coast may well have bottomed out already and is currently in recovery.

Foreign investors interested in buying U.S. real estate in the Western part of the country might safely make a move at this point, if in fact they are looking to catch home prices at their lowest possible point.

In March, the number of unsold homes on the U.S. market fell by 3.6%, which is a good sign, but sales are still very sluggish and the inventory is still enormous.

According to Paul Dales, U.S. economist for Capital Economics, “The excess supply of new homes for sale is still high and heavy discounts on foreclosed properties have made new homes less appealing. Any rebound in starts will be modest.”

Home sales remain sluggish in spite of rock bottom prices and large inventory because of the very large job losses in the U.S., and because credit for personal home mortgages is also becoming much tighter. In other words, houses are cheap, incentives are high, interest rates are low, but lots of people are unemployed and lack the 20% down payment that is now often required in order to qualify for a mortgage. Origination fees are also up considerably.

Gone are the days of 100% financing on marginal credit.

That means that, while lots of people may want to buy a home, few can. At least, not yet.